Articles: Blog

Balanced Scorecard at 20: Norton’s predictions for the balanced scorecard’s future

It is 20 years since the first Harvard Business review article by Kaplan and Norton in 1992.    Now, in 2012,  70% of organisations claim to  have a balanced scorecard and the approach has moved on significantly.

To commemorate the success of the  approach , on 12th November 2012, both David Norton and Bob Kaplan were presented with honorary fellowships from CIMA [1], to mark 20 years of the Balanced Scorecard (BSC) system.  Kaplan and Norton took the opportunity to map out some future developments that are described in an Accounting Web article [2] from which prompted these thoughts and perspectives.

First, a concern about the Accounting Web article

While teasing out Norton’s thoughts from this article I must admit I was constantly concerned that what I was reading did not make complete sense.  It reads nothing like David Norton speaks, seems to compound issues, and makes unclear statements.  I have a concern that this might have been written by someone unfamiliar with the subject.  Someone who was not clearly reporting what had been said.

That aside, there are a few nuggets in here, though anyone looking for insights into the development of the approach over the last 20 years would be better to read Bob Kaplan’s article on the Conceptual basis of the Balanced Scorecard, published by Harvard Business Press 2012. [3]

Anyway, with that aside, lets look at what is being said.

After 20 years, is the balanced scorecard obsolete?

David clearly thinks that all management systems become obsolete as the business and organisational environment changes.  Of course this applied to the balanced scorecard if it too does not evolve, (and it clearly has).

What worries me here is that David will be misquoted. This will be used to suggest the approach is obsolete by these people who still think the approach is based upon the 1992 article.   (For example,  in this article, Bob Kaplan explains to a bunch of academics that they ought to read beyond the early papers and get up to date, “Kaplan on the Balanced Scorecard at 20“).

Of course, 20 years, and literally thousands of implementations, many developments have moved the approach forward significantly.  Norton & Kaplan now clearly position the Balanced Scorecard approach as providing  as “The Execution Premium” during strategy management and execution.  At Excitant, we see our  fourth generation balanced scorecard approach as having made the approach much more relevant to today’s uncertain and dynamic environment.

What further improvements does David now see?

Corporate transparency

Norton makes a passing reference to Corporate transparency.  Alongside risk and governance, this is increasingly being demanded.    However we must be careful here in managing expectations.

What we report to the outside world is a mere subset of what we manage internally.  The balanced scorecard structure provides a way of exposing the outside world (stakeholders and non-stakeholders) to the overall picture and providing some leading indicators of capability and external expectation, for instance improvements in social responsibility, health and safety, or green credentials.  In other cases they are useful when reporting standard cross-industry measures of performance (eg on-time departure of aircraft or retail like for like sales.

What they are not suitable for is exposing the deeper learning and growth objectives that the organisation will be developing to deliver its strategy.  Otherwise you might as well send a letter to your competitors saying, “Here we are developing a new service line or supply chain capability – if you want to beat us too it, here is how far we have got and what needs to be completed!.  That would be a nonsense.

Transparency, yes, but in an appropriate corporate governance context.

Increasing Governance & Managing risk

Alongside the transparent governance sits the risk reporting.  Again a poorly understood area.

When you implement a simple, measures based, operationally focused balanced scorecard , handing risk is problematic.  Simplistic approaches like adding “risk indicators” is the only plausible, but limited value, option.

In contrast when implementing the Strategic balanced scorecard approach, you will

  1. Explicitly handle and mitigate risks associated with internal strategy execution.
  2. Can explicitly handle external assumptions and risks to strategy execution by including features of Excitant’s fourth generation balanced scorecard approach
  3. Can explicitly include aspects where risk processes or risk functions are involved through a specific strategy map and scorecard for that function
  4. Explicitly include risks to achieving objectives (and derive indicators of those risks manifesting themselves)
  5. Explicitly include risks to projects, programmes and initiatives.
At the same time you should render unto Caesar that which is Casear’s:  by that I mean do not try to load all performance management into a team’s balanced scorecard when there are other risk reporting mechanisms that most mature risk managing organisations use: compliance and fraud protection in financial services; or personal and process safety risks in Oil and Gas.  Of course you can  exploit good balanced scorecard thinking to focus these approaches and improve their thinking, just as we have with clients.  But the trick is also to think of overall enterprise performance management as a set of tools, each of which illuminate aspects of performance.

Continued emphasis on Human Capital

David emphasises the continued important of managing the human capital.  It is not a phrase I like, because it suggests people are a commodity to be traded, rather than invested in.    However I agree.  Too few balanced scorecard implementations truly consider the capabilities of their organisation and how these drive the strategy and lead to competitiveness.  Instead we still find many littered with the detritus of HR measures: staff turnover,    sickness, training and 12 month old culture surveys.  Too few really say, “These are the few really vital, core capabilities and behaviours we must focus on to  succeed”.  Simplistic blandness, is no substitute to insightful thinking and focussed action.

A concern about the Accounting Web article

It is a shame that the article does not set David’s view of why and how it has evolved.  To that end it is a poorly written article with few insights for a discerning reader, which is why I decided to illuminate it further in this article

That aside, there are a few nuggets in here, though anyone looking for insights into the development of the  approach over the last 20 years would be better to read Bob Kaplan’s article on the Conceptual basis of the Balanced Scorecard, published by Harvard Business Press 2012.

Someone wanting their balanced scorecard approach to reflect twenty years of development, so it really makes a difference in their organisation, would be well advised to drop me an email or give me a call.

References

[1] Article on Accounting Web, 12th November 2012 http://www.accountingweb.co.uk/article/what-next-balanced-scorecard/533780

[2] Balanced Scorecard at 20: CIMA website article http://www.cimaglobal.com/Thought-leadership/Newsletters/Insight-e-magazine/Insight-2012/Insight-October-2012/The-balanced-scorecard-20-years-young/

[3] Kaplan, R S. Conceptual Foundations of the Balanced Scorecard.  Harvard Business School Working Paper 10-074  http://bit.ly/Umwnmd

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